High Profits for Thrifts In Low-Income Housing

A Danbury, Conn., thrift is generating up to 400 basis points per loan in income under state and federal housing programs for people with low or moderate incomes, its chief executive told a conference in New York.

Community Reinvestment Act lending "pays for itself," said Henry A. Bessel, president of Nutmeg Federal Savings and Loan Association, at an urban housing conference sponsored by the Office of Thrift Supervision.

Not only are the government-assisted loans more profitable than conventional mortgages in the current rate environment, they can also be coordinated with other profitable programs, Mr. Bessel said.

Some banks regard Community Reinvestment Act compliance as a burden. But Mr. Bessel and executives from other thrifts that have earned "outstanding" ratings say affordable housing is an attractive niche.

Thrifts' relatively small size means they are "closer to the actual needs of the community," said Ellen Seidman, director of the OTS. "The combination of their strong residential lending focus, the portfolio lending, and their relatively small size makes them particularly important in affordable-housing lending."

But even large thrifts can prosper in the market, said James P. Linnane, vice president and New York tristate district manager for Dime Savings Bank, the main operating unit of $22 billion-asset Dime Bancorp.

"Thrifts have a laser-type focus on the issue of first-time homeownership because the responsibility of lending falls on their shoulders," said Mr. Linnane.

Nutmeg, which has $111 million of assets and a $450 million servicing portfolio, devotes 25% of its business to low-to-moderate lending, which includes Connecticut Housing Finance Authority and federally guaranteed FHA and VA loans, said Mr. Bessel.

The FHA and Connecticut Housing Finance Authority loans generate 100 to 400 basis points on each transaction, he said.

He noted the thrift also has a Small Business Administration lending program that provides in excess of a 30% return on investments and ties into Nutmeg's mortgage programs.

The commercial loans help provide jobs, and this ties into Nutmeg's residential efforts, Mr. Bessel said, noting that Nutmeg's servicing expertise is applicable to the SBA loans.

Dime Savings Bank is also focused on CRA lending, but on a larger scale.

Mr. Linnane said Dime's large distribution network has let it broadly market homeownership as an alternative to renting.

Dime has a sales force dedicated to the origination of low- and moderate-income loans, in addition to a retail unit that has more of a regional focus. Loan officers in the different units also have compensation plans that are structured differently, he said.

Dime's management successes are a result of managing the business at the loan officer level, Mr. Linnane said; Dime looks at every loan that an officer closes.

"The typical potential homebuyer is unaware of what's available," he said. "The challenge is to get the word out to the community," he said.

Dime is trying to find out what short- and long-term community needs exist, Mr. Linnane added.

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